'Muscle in'

But Mr George, who has been a prominent critic of the government's NHS proposals, warned it could lead to a legal battle with private health care providers.

He told the Commons: "If NHS foundation trusts ... can muscle in on the private market then private providers will feel more justified, and the courts could well agree, in arguing the right to compete for far more NHS services."

Hard-pressed hospitals, facing increasingly large shortfalls, desperately trying to balance their books, are bound to take in increasing numbers of private patientsEmily Thornberry, Shadow health minister

Although he accepted that the government was not attempting a stealthy privatisation of the NHS, he said it could be a "catastrophic policy" which might be "regretted" in the future.

"Once you go down this particular road there's a lot of conundrums which arise which need to be sorted out.

"I don't believe the government entirely have a handle on this issue."

The Bill was being scrutinised in the Commons report stage debate, after the initial proposals were sent back to a committee of MPs following the government's "pause" in legislation which followed criticism from health professionals and patient groups.

Among the changes to the original proposals are plans to allow hospital doctors and nurses - not just GPs - to be part of new commissioning consortia.

The changes also include scrapping an April 2013 deadline for the new bodies to take over.

'Private patients'

Mr Burns said critics claiming NHS patients would lose out if the cap were abandoned were guilty of "pure and simple scaremongering".

Shadow health minister Emily Thornberry called for the plan to lift the cap to be scrapped.

"It will mean that our National Health Service, where people are tended by our NHS-trained doctors, using our NHS equipment, will be filled up with private patients because they will be able to pay more," she said.

"And hard-pressed hospitals, facing increasingly large shortfalls, desperately trying to balance their books, are bound to take in increasing numbers of private patients."

A Labour motion calling for the cap on private earnings to be retained was defeated by 292 votes to 239, but Lib Dem sources said the issue would face further scrutiny in the Lords.

The Bill will face further scrutiny by MPs on Wednesday, when the issue of advice offered to women seeking abortions will be debated. The legislation will then face its final Commons test at third reading.